At a time when marijuana use — both for medicinal and recreational purposes — is gaining increased acceptance, it’s easy to forget that the so-called War on Drugs has never really gone away.

Last year legal marijuana sales in the U.S. hit an estimated $5.4 billion, and that’s expected to grow to $6.7 billion this year. As security advisors to businesses in the legal marijuana industry, we at Hillard Heintze can attest to the rigorous safety precautions and regulations such businesses are subject to. Yet the growth in legal marijuana has caused Mexican drug cartels to change their focus to smuggling harder, illegal drugs like heroin and meth into the U.S. And, as has been the case for decades, the U.S. and other countries involved in the War on Drugs remain committed primarily to stemming the flow of these illegal drugs and eradicating them at the source.

Cartels as Multinational Corporations

But Tom Wainwright, an editor at The Economist and author of the new book Narconomics: How to Run a Drug Cartel, argues that the heavy focus on the supply side of the illegal drug trade has been misplaced and that governments need to understand that large drug cartels in many ways function like multinational corporations.

In a March 1 speech to The Chicago Council on Global Affairs, Wainwright said that, contrary to the popular image of cartel members as inept murderous thugs, many are actually quite business savvy. He said that today’s drug cartels even have their own human resources, marketing and public relations divisions, all designed to help keep business running smoothly.

In some places drug cartels even practice a twisted form of social responsibility, providing services and maintaining stability in communities where the government is of little help. He recalled meeting a woman in one such area who said she asked the local drug cartel to kill a group of thugs that were terrorizing people because the police were corrupt and wouldn’t do anything about it.

When Progress Isn’t Really Progress

Wainwright, formerly Mexico City bureau chief for The Economist, criticized the way governments use large drug busts and eradication efforts to make it appear as though they are making greater progress in fighting the illegal drug trade than they really are. He recalled a 100-ton marijuana bust in Tijuana a few years ago in which the Mexican government claimed it had confiscated $500 million worth of the drug. Yet that figure was based on the U.S. street value, whereas the wholesale value of the confiscated pot was a mere $10 million, he said.

With regard to eradication efforts, Wainwright explained that drug cartels, like some large corporations such as WalMart, have what is called a monopsony, which is a situation in which many suppliers compete for just one buyer. In this case, it’s the coca farmers and other drug growers in a specific region who can only sell their product to the local cartel and therefore have no bargaining power. Thus, when the government of a drug-producing country sends in the military to eradicate crops it ends up hurting primarily the individual farmers whose crops have been destroyed while the cartel simply turns elsewhere to purchase raw materials. Wainwright pointed out that despite the efforts of governments in Colombia and Peru to reduce cocaine production the price of the drug has remained largely unaffected over time.

Dealing With ‘Staffing Issues’

Wainwright recalled traveling to El Salvador to interview Carlos Mojica Lechuga, leader of one of two notorious drug gangs in that country that together employ about 70,000 people. The drug lord spoke to him about problems that any Fortune 500 CEO might relate to. “The more we talked the more it became clear to me that one of the biggest problems he has in his organization is managing his staff,” Wainwright said. This is particularly difficult in an environment where one’s “employees” are at great risk of getting murdered or arrested, Wainwright added.

He said that the corrupt prisons in many Latin American countries make them ideal recruiting centers for drug cartels. He described scenes right out of the hit Netflix show “Narcos,” about former Columbian drug kingpin Pablo Escobar, with prisons run by the cartels themselves and furnished with prostitutes and animals.

Wainwright also cited a European Commission study that found that, in contrast to their Latin American counterparts, European drug cartels face persistent labor shortages. As a result the European cartels tend to be more reluctant to resort to violence for fear that it could cost them employees who are difficult to replace.

Focus on Demand Required

Wainwright said that demand for illegal drugs is relatively inelastic, meaning that drastic price swings have little effect. Therefore the solution to winning the War on Drugs in all likelihood lies with targeting demand rather than supply, he said.

It’s a point that’s hard to refute. Governments can’t just turn a blind eye to the illegal drug trade, but the confiscation and eradication strategies of the past several decades have amounted to winning small battles while losing the overall war. Tackling the demand side of the equation may be even more challenging, but it’s also likely the only way to win.

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